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1 1 (January 13, 2021)

handle is hein.crs/govebkj0001 and id is 1 raw text is: Congressional ~.Research Service informing the legislative dbate ince 114___ Oil Markets and Prices in 2021: Demand, Supply, and Policy Uncertainties January 13, 2021 Oil markets began 2021 following one of the most disruptive years on record. In the first half of 2020, Coronavirus Disease 2019 (COVID-19) pandemic-related demand suppression for oil-derived products (e.g., gasoline, diesel fuel, and aviation fuel) created historically large market imbalances. Petroleum inventories held in commercial storage increased quickly as product prices declined, refining profitability decreased, and crude oil demand collapsed. Oil prices fell rapidly and West Texas Intermediate (WTI) futures settled negative for the first time. Federal policy makers evaluated options to provide financial relief for U.S. oil producers, including exercise of Strategic Petroleum Reserve (SPR) authorities and royalty relief. Nevertheless, companies filed for bankruptcy protection, decreased asset values, and some U.S. refineries announced plans to either close or convert operations to produce renewable fuels. Oil prices began to recover following implementation of a production restraint agreement among the Organization of the Petroleum Exporting Countries (OPEC) and certain non-OPEC countries (collectively OPEC+), combined with economically motivated production declines in the United States, Canada, and other nations. Relative market stability generally describes the second half of 2020. Petroleum product consumption increased. OPEC+ group-level compliance was near 100%. Implied demand/supply balances indicated an undersupplied market. Commercial inventories declined. WTI oil prices were mostly at or near $40 per barrel, but closed out 2020 at $48.52. Indicators suggest a recovering oil market with potential for higher, yet moderate, prices in the short term. However, demand, supply, and uncertainties in U.S. policy toward Iran could change 2021 market and price conditions. Demand and Supply Uncertainties Multiple factors can affect oil demand and supply, and relatively small imbalances can translate into large price movements. Demand uncertainty in 2021 is at heightened levels as countries continue pandemic management efforts. Successful deployment and effectiveness of a COVID-19 vaccine could materially increase economic activity and petroleum product demand, especially for aviation fuel. Other demand uncertainties include (1) general economic conditions and growth, a primary oil demand factor, and (2) pandemic-related structural/societal mobility and work changes (e.g., lower public transportation usage Congressional Research Service https://crsreports.congress.gov IN11574 CRS INSIGHT Prepared for Members and Committees of Congress

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